This is a continuation of my recent argument in favor of a different approach to how you, as a consumer of financial advice, and we, as advisors, need to manage your retirement money. Or any money you have for that matter.

In 2008, U.S. equities were gutted. 99.8% of all U.S. equity mutual funds had a negative return. This number is drawn from a universe of 2,391 funds, none of which had more than 15% of their portfolio in cash, bonds or non-U.S. stocks. To say that the damage was pervasive is an understatement.

Other than my personal clients, I have no idea where your money was invested in the fall of 2008. What I do know is that the average return for those funds referenced above, for all of 2008, was -37.8%.

And much of this happened because we were taught, learned by experience, persuaded, or whatever, that holding stocks in your portfolio was the best way to protect you against the long term ravages of inflation. And because during the run up from 1982 to 2000, the average return was a little over 15% per year. What’s not to like about that?

Move ahead to 2009. The average one-year return was 32.4%, The average return for the same group of funds in 2010 was 19.6%. Sounds great, doesn’t it, but here’s the sticky part. Those who got out after after being scared to death in 2008 missed most of that recovery. And those who stayed in for the most part just got back to even. That’s three years of everyone’s life just to break even, never mind the emotional cost due to aggravation and worry.

If you are thinking you really are back to square one, you are mistaken. Assuming a single $10,000 investment at the start of 2008, less than 39% of the 2,391 funds produced a positive three-year annualized return by the end of 2010. That means 61% of these funds were still under water.

Some of this is a result of the inherent cost of owning retail mutual funds. They are not cheap, and all have costs and fees that don’t have to be reported. But this isn’t about fees, it’s about what you get to keep and have available to help pay the cost of food and gasoline in the coming years.

For many of you traumatized by the fall of 2008 and winter of 2009, you are still sitting on the sidelines, either in cash or almost cash, wondering what the heck to do going forward. And I’m sensitive to the fact that many of my clients today are no longer building toward a financial future. They are old enough to understand they are going to live with what they have, not what they are likely to earn over the next however many years.

Since no one knows what will happen tomorrow, much less over the next 24 months, one way to protect yourself is to build a more diversified portfolio that lowers the probability of experiencing a large loss.

Regardless of whether you choose to simply stay on the sidelines in fear, or re-enter the water, we must resist the ever present urge to second-guess ourselves. By definition, the process of investing involves uncertainty and therefore, risk. It’s OK to move toward a guaranteed outcome, but there are ways to get your feet wet, to protect yourself, and end up with more money. If you know anyone trying to figure this all out, and needs someone trustworthy to talk with, give them my name and let them at least have an opportunity to judge.